Here's my summary of the key events overnight that affect New Zealand, with news of a painful stumble in Brazil.
But first, all eyes in markets worldwide will be on tomorrow's important US non-farm payrolls. The data will probably be quite good, but I will have my eye on their participation rate. The Fed will have its eye on wage growth. For both metrics, the question is, are the recent improvements being sustained?
In the US, there was a minor rise in the weekly level of jobless claims to 266,423 but most observers see the trend of this data falling. In fact, in the first half of 2009, more than 600,000 laid-off workers were applying for these benefits each week, and this week the data ended a year-long streak where that level has been below 300,000 every week.
Helping is data for new American factory orders which were up +1.6% following two consecutive monthly decreases This followed a -2.9% December decrease. Shipments, especially of 'transportation equipment' were up +2%.
Things are not nearly so sanguine in Brazil. Their economy dived an eye-watering -3.8% in 2015. Q4-2015 from Q4-2014 was a -5.9% drop. They were once one of the world’s fastest-growing large emerging markets, but are now in their worst recession since official records began.
But that wasn't as bad as for Chinese gambling mecca, Macao. Their GDP dropped -20.3% in 2015. Among many, Aussie casino boss James Packer will be smarting.
The iron ore price isn't sticking to the script, at least for the bears. The commodity that was supposed to fall lower has risen a remarkable +18% in the first nine weeks of this year. That is another reason the Aussie dollar is on the ascendancy. The shift may also help Brazil out of its funk. But despite this, the ratings agencies are still marking down miners.
Back in the US, there was some worrying data out today on labour productivity, the relationship between hours worked and the output of that work. It rose only +0.5% from Q4-2014 to Q4-2015, and only +0.7% 2014 to 2015. The worrying bit is that things slipped in the final quarter of 2015.
In New York the benchmark UST 10yr yield is essentially unchanged but a touch softer at 1.82%.
The oil price is also unchanged in mid-day trading at US$34.50/barrel in the US while Brent is at US$37/barrel.
The gold price is up US$16/oz however to US$1,266/oz.
The NZ dollar will start today at 67.4 US¢, at 91.7 AU¢, and at 61.6 euro cents. The TWI-5 index is just on 72.
If you want to catch up with all the local changes yesterday, we have an update here.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
Daily exchange rates
Select chart tabs
26 Comments
Earnings downgrades,
"Negative Growth
Reversing from a growth forecast of 1.6 percent three months ago, income among S&P 500 companies is now estimated to fall 8.0 percent this quarter."
"The pace at which earnings estimates are being cut is getting worse, not better."
http://www.bloomberg.com/news/articles/2016-03-02/earnings-downgrades-t…
And yet the plague of central bank monetarist actions continues to accelerate malinvestment ahead of the productive capital needs of main street.
For those who doubt that negative interest rates are bad for banks, take a look at what's going on in Japan.
The nation's commercial lenders are loading up on bonds that don't come due for decades to get some yield, any kind at all. They bought a net 197.4 billion yen ($1.7 billion) of superlong Japanese government bonds in January, up from 7 billion yen the month before, according to a Bloomberg News article by Chikako Mogi and Shigeki Nozawa. Read more
time is running out for the bulls, will be interesting to see what effects we feel in NZ, and we don't have the luxury of a strong balance sheet.
I can see sales of SOE if GFC mark 2 happens
http://www.cnbc.com/2016/03/03/i-see-bubbles-bursting-everywhere-top-ac…
Strong balance sheet
Or robust policy with appropriate standards ?
.http://i.stuff.co.nz/business/farming/77364162/De-intensify-or-sell-dai…
Ex AbbeyD.
Fonterra has a problem that can be described as the absence of balance sheet separation, because where Fonterra's balance sheet "stops" and its suppliers' balance sheets "start" is something of a semi-permeable membrane. This is because both are linked by payout subordination to the banks. This means that the banks get first call on payout revenue. Indeed, this is the sole reason Fonterra can maintain its current credit rating (which is high) given its current gearing (which is also very high when it should be considerably lower).
Amazing that Fonterra's obligation to default on it's shareholder's payout warrants a higher credit rating (vicious circle economics for sure). It's exactly the situation New Zealand bank depositors find themselves in, except they stand as bank capital underwriters for both the aforementioned parties at the RBNZ's pleasure.
Have the Treasury modelled what to do when Fonterra need a government bailout, I wonder? Somehow I rather doubt it. Easy to see Fonterra's credit rating ruined by the next scandal or other unforeseen event and their debts not being rolled over at an affordable rate, or at all if the unforeseen event involves banks.
RNZ ringing all the bells this afternoon.
http://www.radionz.co.nz/audio/player/201791865
and for Aj:
https://www.youtube.com/watch?v=D_i41eiQAFI
see the 2:50 mark
"One man loves milk now he owns a million cows.......
Ha,ha maybe that was what the Ceo of Landcorp thought.
Classic
In the US, there was a minor rise in the weekly level of jobless claims to 266,423 but most observers see the trend of this data falling.
Hmmmm.
For instance, the last time the unemployment rate was at or near “full employment” below 5% was 2007 just prior to the Great Recession. That year there were an average of 26.3 million Americans receiving Supplemental Nutrition benefits, or SNAP. As of the latest estimates from the USDA for November 2015, there were 45.5 million under SNAP assistance even though again a 5% unemployment rate and orthodox suggestions of “full employment”. The difference of 19 million matches the general outline of the “missing” 15 million from the employment statistics, and thus the overall economy. Read more
After Davids last gold article regarding the IRD stance on capital gains I got curious about Exters Pyramid. Most things in economics have a countering critical view, so I went looking for critique of Exters work. I didn't find anything meaningful, so I wonder if anyone else can tell me why Exter might be wrong?
All these things are insignificant in comparison the the very real problems currently disrupting our little planet.
http://www.slate.com/blogs/future_tense/2016/03/01/february_2016_s_shoc…
The real reason why Lochiner sale was vetoed?
http://www.ft.com/intl/cms/s/0/d9864062-ded7-11e5-b67f-a61732c1d025.htm…
AFR.com.au reveals
Four Chinese government officials have been jailed for corruption in cases involving Australian companies and training schools.. Beijing pressures Canberra for greater co-operation in its fight against graft.
http://www.afr.com/news/world/asia/chinese-corruption-benefits-australi…
meanwhile in australia, anyone like to guess how much has been done here
almost 28 billion in loan loans given to people who had an inability to repay the loan
http://www.dailytelegraph.com.au/business/companies/almost-28-billion-i…
Henry, have a read of this
Dairy Market News reports that, of late, “A number of plants [in the Midwest] concerned with further growth of long inventories of blocks and barrels, have begun to turn away loads of milk.”
Milk output remains heavy in Europe and processors have expressed concerns about handling all the milk they will surely face during the flush. They are already sending ever larger volumes of product into the government’s storage schemes. Last week, manufacturers sent 9,880 metric tons of SMP into the intervention purchase program, by far the largest volume in any week in years.
That product will eventually have to return to the market, and it will face plenty of competition. U.S. SMP output in January totaled 51.2 million pounds, up 17.3% from a year ago. Domestic processors are eyeing the export market and shifting milk away from NDM into SMP.
http://www.milkproducerscouncil.org/updates/030416.pdf
https://secure.attenbabler.com/wordpress/wp-content/uploads/2016/03/Mon…
We are all geting a lesson in production economics.
In particular the difference between average and marginal..
Even friends are chatting behind our back
http://theglobaldairy.com/noticias/rabobank-better-way-needed-to-establ…
“I think people here in Europe have been known to quote the GDT price and taking it for the world price. It’s just one factor that says something about world demand, but it is not the world price,” Netherlands-based Kevin Bellamy told Agriland.ie.
“If Europeans are going to be the key exporters on the market for the next couple of years while the Euro is so weak, then we need to have a better way to establish what price that is going for on the world market.”
the crunch is the Europeans will be the 'key exporters' no longer NZ. A new Paradigm for NZ farmers to adapt to. Do we have the tools or will we be looted?
>>
In my archives there is a column or two that introduces the reader to John Perkins’ important book, Confessions of an Economic Hit Man. An EHM is an operative who sells the leadership of a developing country on an economic plan or massive development project. The Hit Man convinces a country’s government that borrowing large sums of money from US financial institutions in order to finance the project will raise the country’s living standards. The borrower is assured that the project will increase Gross Domestic Product and tax revenues and that these increases will allow the loan to be repaid.
However, the plan is designed to over-estimate the benefits so that the indebted country cannot pay the principal and interest. As Perkins’ puts it, the plans are based on “distorted financial analyses, inflated projections, and rigged accounting,” and if the deception doesn’t work, “threats and bribes” are used to close the deal.
The next step in the deception is the appearance of the International Monetary Fund. The IMF tells the indebted country that the IMF will save its credit rating by lending the money with which to repay the country’s creditors. The IMF loan is not a form of aid. It merely replaces the country’s indebtedness to banks with indebtedness to the IMF.
To repay the IMF, the country has to accept an austerity plan and agree to sell national assets to private investors. Austerity means cuts in social pensions, social services, employment and wages, and the budget savings are used to repay the IMF. Privatization means selling oil, mineral and public infrastructure in order to repay the IMF. The deal usually imposes an agreement to vote with the US in the UN and to accept US military bases.
Occasionally a country’s leader refuses the plan or the austerity and privatization. If bribes don’t work, the US sends in the jackals—assassins who remove the obstacle to the looting process.
Perkins’ book caused a sensation. It showed that the United States’ attitude of helpfulness toward poorer countries was only a pretext for schemes to loot the countries. Perkins’ book sold more than a million copies and stayed on the New York Times bestseller list for 73 weeks.
Now the book has been reissued with the addition of 14 new chapters and a 30-page listing of Hit Man activity during the years 2004-2015. http://www.amazon.com/New-Confessions-Economic-Hit-Man/dp/1626566747/re…
You may be right, about an internet or other channel rivals to both supermarkets or multi-wholesaler path. Imagine Mainland cheese internet TV and shopping portal, letting folk live the South Island life in product and services zoomed where ever by the interweb/2 day logistics to any where.
However within the farmgate, the ss acceleration from Europe and US has been significant.
As a friend writes
https://far.rabobank.com/en/sectors/dairy/Economies-of-scale-US-dairy.h…
The only way out for small farmers is to sell direct. Cut out all the middle men who want large reliable supply, all year, contracted, the bread and butter of the corporate accountant.
However markups in the supermarket with sales tax are often %50 of the sale price, thats where farmers need to look to increase margins.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.